Soha & Lang Attorney Jillian Henderson Elected President of WDTL

On July 16, 2020, Soha & Lang, P.S. attorney Jillian Henderson was elected President of the Washington Defense Trial Lawyers (WDTL). WDTL provides education, recognition, collegiality, professional development, and advocacy for and on behalf of civil defense litigators. Jillian’s election culminates years of service. Congratulations Jillian and well done!

Oregon District Court Finds No Continuing Duty to Defend When Insurer Has Exhausted Its Limits

Siltronic Corp. v. Employers Insurance Co. of Wausau, Oregon Federal District Court Cause No. 3:11-cv-01493, Opinion and Order on Summary Judgment (February 4, 2013) (Dkt. No. 62)
In this environmental coverage action, the insured, Siltronic, moved for summary judgment requesting the trial court to find that one of its primary insurers, Wausau, who had issued six years of primary coverage, had a continuing duty to defend even after its indemnity coverage had been exhausted by payment of claims.
Each of the six Wausau policies provided $1 million in liability limits, for a total of $6 million of available liability coverage.  Each policy also provides separate coverage for defense costs. The provision at issue is the same in each of the Wausau policies and provides the following coverage for property damage:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such . . . property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.
 Over approximately ten years, the Oregon Department of Environmental Quality (“ODEQ”) and the United States Environmental Protection Agency (“EPA”) required Siltronic to perform various remediation and removal actions, as well as pay for liability for natural resource damage,  related to  the Portland Harbor Superfund site.  In September 2009, Wausau declared that its indemnity limits had been exhausted and refused to pay additional defense costs.  Wausau claimed that it had paid $6M in indemnity in addition to $7.699M in defense costs.
Upon Wausau’s declaration of exhaustion, Siltronic tendered to its excess carrier, Granite State, who agreed to defend under reservation of rights.  significantly, Granite State claims that its policy is a “wasting policy” where payment of defense costs erodes limits.  At some point, Granite State determined that Wausau had not properly exhausted and that it had no current obligation to pay defense or indemnity.  Siltronic retendered to Wausau and Wausau rejected the tender.  Siltronic then filed this coverage action.
The court found that “[r]esolution of the issue of whether Wausau has a continuing duty to defend turns on how to interpret the policy provision which states that Wausau “shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.” Siltronic took the position that the phrase “judgments and settlements” is not ambiguous and that Wausau must continue to defend Siltronic in the ongoing proceedings with DEQ and EPA until those proceedings are finally resolved though “judgments and settlements.” Given the large number of PRPs involved in the Portland Harbor Superfund Site, the parties predict that such a resolution may take years. Wausau contended that the language at issue is unambiguous, and arguied that Wausau’s payment of environmental cleanup costs mandated by DEQ.

The court reasoned:

Because the phrase “exhausted by payment of judgments or settlements” is not defined by the policies, the court must look to its plain meaning.  Though this phrase may seem straightforward at first glance, the fact cannot be overlooked that this is not an ordinary insurance coverage case, but instead involves an environmental action by DEQ and EPA. As summarized by another court:


In the typical coverage case, a primary insurer validly exhausts its indemnity limits when it pays a settlement or judgment resolving third party claims . . . In an environmental action like this one where the insured is faced an RAO (Remedial Action Order), however, there is no settlement or judgment in the usual sense of the words. For these reasons, it is difficult to ascertain precisely at which point indemnity limits may be validly exhausted. Consequently, in the context of an environmental action, the phrase “exhausted by payment of judgments or settlements” is ambiguous because it is subject to more than one reasonable interpretation. The court must therefore consider the context in which the term is used in the policy as well as the “broader context of the policy as a whole.” 

The court found persuasive that for the purposes of compelling coverage for environmental claims, ORS 465.480 treats environmental claims as if they were lawsuits.  The court further concluded that the DEQ and EPA orders and agreements with Siltronic included language of finality and an intent to create legally enforceable rights and responsibilities to a third party.  The court found that there was no evidence that Wausau’s payment of the indemnity limits was anything other than in good faith. The underlying environmental action had been ongoing for nine years before Wausau declared exhaustion of the coverage limits. Additionally, and perhaps most importantly, Wausau accepted tender for coverage at the time that Siltronic gave notice of the environmental contamination actions against it. Within two months, it began paying the costs Siltronic incurred in response to DEQ’s and EPA’s various demands. and it continued to pay those costs for six years.

The court found that the facts before it at the summary judgment proceeding were not sufficient to determine whether Wausau had indeed paid $6M in indemnity, but that assuming it had, then it had indeed exhausted its indemnity liability by payment of “judgments or settlements” and had no continuing duty to defend Siltronic.

Washington Supreme Court Weighs in on the Cooperation Clause

Staples v. Allstate Insurance Co., __ Wn.2d __, __P.3d ___,  2013 WL 25887 (January 24, 2013)

The insured, whose insurance claim was denied for failure to cooperate, brought action against his homeowners’ insurer, alleging breach of contract, bad faith, and violation of the Insurance Fair Conduct Act (IFCA).  In the trial court, summary judgment was entered for the insurer, and the insured appealed. The Court of Appeals affirmed, and appeal was taken to the Washington Supreme court who then reversed.

The insured, John Staples (“Staples”) had his van stolen from a parking lot.  In the van, Staples had stored a large collection of tools.  When staples reported the theft to the police, he stated that the tools were worth approximately $15,000, and that his van was a “work truck” that was absically a “mobile workshop” for his business.  Two weeks later, Staples submitted a claim for the theft loss under his homeowner’s policy issued by Allstate.  Staples told Allstate that the tools were worth between $20,000 and $25,000 and were for his personal use although they could be used for work.

Based on Staples’ inconsistent statements to the police and the insurer, Allstate transferred staples claim tot he special investigation unit, which in turn requested that Staples provide information proving ownership of the tools, a sworn proof of loss and other documents.  Allstate also recorded two statements from staples, neither of which was under oath.  Over the next couple of months Staples failed to provide the requested information  despite repeated written requests from Allstate.  Three months later, Staples submitted a sworn proof of loss, and in response, Allstate requested an examination under oath (“EUO”) and further documents.  When the documents were not provided, Allstate cancelled the EUO and stated that it would reschedule the EUO and requested that Staples contact Allstate to reschedule the EUO.

Staples hired an attorney that began making allegations of IFCA violations and accusing Allstate of making burdensome and vexatious requests.  Staples did not attempt to reschedule his EUO or provide the documents that Allstate had requested.  After giving Staples several extensions in which to comply with the EUO and document demands, and staples failure to do so, Allstate denied the claim.  Staples instituted coverage litigation and Allstate moved for summary judgment based on Staples’ failure to cooperate.

The Washington Supreme Court reiterated that most insurance policies contain cooperation clauses requiring the insured to cooperate with the insurer’s handling of claims. Id. at *6, citing Thomas V. Harris, Washington Insurance Law § 13.02, at 13–11, 13–12 (3d ed.2010). Typically, an insured that “substantially and materially” breaches a cooperation clause is contractually barred from bringing suit under the policy if the insurer can show it has been actually prejudiced. Id.  The burden of proving noncooperation is on the insurer. Oregon Auto. Ins. Co. v. Salzberg, 85 Wn.2d 372, 375–76, 535 P.2d 816 (1975)

Staples‘ homeowner’s policy with Allstate provided specific, enumerated cooperation duties including the requirement that Staples submit to an EUO:

3. What You Must Do After A Loss
In the event of a loss to any property that may be covered by this policy, you must:
d) give us all accounting records, bills, invoices and other vouchers, or certified copies, which we may reasonably request to examine and permit us to make copies.
       f) as often as we reasonably require:
2) at our request, submit to examinations under oath, separately and apart from any other person defined as you or insured person and sign a transcript of the same.


The Court found that this language did not give Allstate an absolute right to conduct an EUO, but rather, “[g]iven the quasi-fiduciary nature of the insurance relationship, . . . . if an EUO is not material to the investigation or handling of a claim, an insurer cannot demand it.”  Id. at *7.   While the Court found that under the facts of the case it appeared that Allstate would have been justified in requesting an EUO, it found that genuine issues of material fact may have precluded summary judgment in this regard, but declined to decide the issue, and instead resolved the case on the following two issues.
The Court instead found that genuine issues of material fact precluded summary judgment because there was an issue of fact regarding whether  (1) Staples substantially complied with Allstate’s request for an EUO; and (2) Allstate was actually prejudiced by Staples failure to cooperate.  The Court reiterated that whether there has been a breach of the cooperation clause in measured by the yardstick of  “substantial compliance” and further found that an insurer must supply affirmative proof that it was prejudiced by an insured’s non-cooperation in order to deny coverage based on a  failure to cooperate.  Finding issues of fact in these regards, the Court reversed and remanded to the trial court.

Washington Law Prohibits Binding Arbitration Provisions in Insurance Policies

In a unanimous decision, The Washington Supreme Court held that Washington law prohibits binding arbitration clauses in insurance contracts. Dep’t of Transp. v. James River Ins. Co., __Wn.2d. __, _P.3d.__ (2013).

RCW 48.18.200(1)(b) prohibits insurance contracts from “depriving the courts of this state of the jurisdiction of action against the insurer.” The court found that this statue prohibits binding arbitration agreements in insurance contracts. The court also held that the statue was not preempted by the Federal Arbitration Act because of an exception in the act for state law regulating the business of insurance.

Oregon Federal District Court Addresses Insured Status and Owned Property Exclusion

Clarendon America Insurance Company v. State Farm Fire and Casualty Company,  Oregon District Court Cause No. 3:11-CV-01344-BR, Order on Cross-Motions for Summary Judgment (Dkt. No. 34), January 3, 2013 
This coverage action arises out of an underlying construction defect case.  Plaintiff Clarendon issued an insurance policy to its named insured, Curtom, who was a defendant in the construction defect case.   Curtom also tendered a defense to State Farm under an Apartment Policy issued to a different entity.  State Farm denied defense on the basis that Curtom did not qualify as an insured under the Apartment Policy (because the complaint did not allege that Curtom was  a real estate manager or partner of the named insured — the two provisions of the Who Is An Insured Section at issue in the case).  Clarendon sued State Farm for defense costs.  On summary judgment, State Farm additionally argued that the owned property exclusion precluded coverage, whether or not Curtom qualified as an insured.
As to the “insured status” question, the district court narrowly construed the extrinsic evidence “exception” for insured status questions as laid out in Fred Shearer (237 Or App 468), and found, “[t]he court in Fred Shearer merely carved out an exception to the general rule announced in Ledford to apply only in the particular circumstances that occurred in Fred Shearer; i.e., the insurer specifically alleged it was impossible to determine Fred Shearer’s status from the face of the complaint, and the court agreed. Accordingly, the court concluded a limited exception to [the 8 corners rule in] Ledford is permissible in instances when courts are attempting to determine whether an organization or individual was an insured under a policy.”  The court found that the rule in Fred Shearer, that an insurer can consider extrinsic evidence on the threshold issue of insured status, did not apply, when from the face of the Complaint and the policy, there is no question that the alleged insured does not qualify as an insured.
As to the “real estate manager” issue, the court found that because the term “real estate manager” was not defined in the policy, it must be given its plain meaning.   The court stressed,  “Although there is not any Oregon authority specifically on point, the Court notes courts in other jurisdictions have addressed this issue. For example, in Savoy v. Action Products Company the court held “a ‘real estate
manager’ is simply one who manages real estate for another. A manager is one who ‘conducts, directs or supervises something.’ He is a person who has the conduct or direction of a thing.” 324 So.2d 921, 923 (La. App. 1975). Similarly, in Insurance Company of North America v. Hilton Hotels the court adopted the reasoning of Savoy and “join[ed] several other courts in finding that the term ‘real estate manager’ is not ambiguous. Accordingly, the Court will consider the term in its usual and ordinary meaning.” 908 F. Supp. 809, 815 (D. Nev. 1995)(citations omitted).” The Court concluded, “the analysis in Savoy, Hilton Hotels, and City of Portland is helpful and, applying it here, concludes “real estate manager” has a plain meaning: One who conducts, directs or supervises another’s real estate as distinct from a construction manager who conducts, directs, or supervises another’s construction.”
The court thus concluded that allegations in the Complaint alleging that Curtom was the “construction manager” were insufficient to find that Curtom qualified as an insured as a real estate manager under the State Farm policy.  The court also found persuasive that the third party complaint differentiated between the terms construction manager and real estate manager.
As to the owned property exclusion, the court rejected Clarendon’s invitation to apply the exclusion as if the alleged insured was the “you,” who owned the property, rather than the named insured as the “you,” as provided by the policy definitions.  The court found that the term “you” was not ambiguous as to whether it applied to an entity that qualified as an insured, but was not a named insured (or additional insured). The court adopted the reasoning of Baumann (152 Or App 181) and rejected the reasoning in Triad (2007 WL 2713842 (D. Or. 2007)).